Posthaste: Why these economists think the Bank of Canada will cut rates as early as April

financialpost.com:

Good morning,

The Bank of Canada’s decision to hold its benchmark interest rate Wednesday was no surprise, but as one economist pointed out the conversation had already moved on.

The central bank ticked several boxes in its statement. Higher interest rates are “clearly restraining spending,” the economy is no longer in “excess demand,” and the slowdown is reducing inflationary pressures.

But it also said inflation risks remain and it was prepared to hike again if needed.

Despite this, many economists believe the hiking cycle that started almost two years and 475 basis points ago has come to an end. The debate has now switched from whether the Bank will hike rates to when it will start cutting.

“It’s safe to say that the countdown clock to rate cuts has begun, even if the Bank isn’t saying so,” said Bank of Montreal chief economist Douglas Porter in a note after the decision.

Markets are betting the Bank will start cutting its rate as early as the April meeting, and some economists agree.

“With inflation still above 3 per cent, we get why the BoC isn’t ready to declare victory,” said James Orlando, senior economist at TD Economics in a note.

But he expects the next few months will be challenging for the Canadian economy. A rising unemployment rate will further slow consumer spending and bring inflation down with it.

“The next move is clearly a cut, with odds pointing to the first move in April. We agree,” he said.

Randall Bartlett, Desjardins’ senior director of Canadian economics, says the Bank will likely need to see the unemployment rate at 6.5 per cent and inflation at or below 3 per cent to begin cutting.

“This is anticipated to happen by the second quarter of 2024, with cuts expected starting at the April 2024